European Economy. Economic Papers. Germany's growth performance in the 1990's

3.3.2 Inefficiencies in spending public money
The efficiency with which government money is spent also has a substantial influence on the
efficiency of the overall economy. Quite evidently, a shift of public expenditures towards
investment rather than consumption would lift the economic growth potential. It is, of course
beyond the scope of this study to discuss this aspect in detail. Two particular fields should be
pointed out, however.
•
Public procurement: A potential for lowering costs for public procurement would be to use
public tendering instead of awarding contracts directly. However, in 1998, less than 10% of
public procurement was published as call for tender. This is below the EU average of 13%
and maximum levels of above 20% for some countries. Since the adaptation of the calls for
tenders law to EU-legislation in February 2001, public procurement in Germany has been
opened up somewhat. Tenders will also be possible via the Internet by the end of 2001,
making procedures easier and more transparent even for foreign offers. Some of the savings
potential for public tendering might be lost, however, through a new law that makes
payment of tariff wages mandatory for all companies bidding for public construction jobs
and is likely to push up prices for public investments.
•
State Aid: From an economic point of view, state aids is generally undesirable, because they
tend to distort competition. In particular, they are mostly geared towards large industrial
companies. Furthermore, it is often capital inputs that are subsidised. It is due to this aspect
that labour-abundant East Germany has a more capital-intensive industry structure than the
West. Finally, a substantial part of the money is spent on old industries to slow down
industrial change. This is particularly wasteful in the case of coal, which has been receiving
annual transfers worth several billion euros (€4.7 billion in 2000) since the 1960s for
restructuring without having to show much for it. The mining regions (Ruhr area and
Saarland) maintain the highest unemployment rates in the West, apart from the areas with
(also subsidised) ship production. In state aid, therefore, less means often more. Despite
stricter controls at both the national and Community levels, state aid has been decreasing
only slightly in Germany and remains above €20 billion annually (around 0.8% of GDP).
An important share of the state aid (nearly 10%) is still in favour of the new Länder whose
volume is decreasing and set to be phased out by the end of 2019.